Carol Stone, CBE

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061229a.jpg" width="353">
Industrial activity generally improved in December, according to local Purchasing Managers&#39; surveys released December 28 and 29. In New York, a broad index covering both manufacturing and services edged higher after a strong rise in November. Chicago&#39;s index managed to climb back above 50% after a surprising dip in November. In Cincinnati, there was a marginally positive reading indicating less growth than in recent months. Finally, in Milwaukee, conditions show fairly steady growth with the December index equal to the averages for 2005 and 2006.
In New York, the business conditions index gained 0.4% in December, following 3.8% in November. It stands 25.2% ahead of a year ago. This index is a linked version of the &quot;current conditions index&quot;, which slowed in the month from 82.5% to 53.6%. The survey also indicates some retreat in the outlook measure for six months out; it was 62.5%, down from 70% in November. However, this still compares favorably with readings over the last couple of years.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061229b.jpg" width="353">
Chicago&#39;s survey recovered most of its November decline, and importantly got back above the 50% breakeven level, reaching 52.5. This remains low, though, compared with all but one other month since the spring of 2003. Several components also remain below 50%, notably order backlogs, employment and delivery speeds. So despite a gain in new orders, the Chicago survey indicates some uncertainty about the overall strength of demand.
Two other cities in the industrial midwest show uneven performances. In Cincinnati, whose results are not seasonally adjusted, the general business production index eased to +6 in December from +15 the month before and +11 in the year-ago month. For the year as a whole, this index began strong at +47. but has ratcheted lower since then. New orders also seem to be tapering down, with December&#39;s -12 the weakest value since the middle of 2002. The price situation in Cincinnati looks better, however, with price increases for commodities, services and equipment all slowing noticeably during Q4.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061229c.jpg" width="353">
In Milwaukee, growth looks steadier, if not faster. The general business index for December is 58, up from 56 the previous month and holding in the range of about 54 to 65 that has prevailed since the recovery from the last recession. However, some uncertainty appears here too, as order backlogs and supplier lead-times have both dropped below 50%.
So manufacturing conditions in the industrial heartland look favorable, but they are not on a firm base. We&#39;d surmise that last summer&#39;s expensive energy and surging commodity prices, along with, until lately, expectations of further interest rate increases imposed considerable caution into managers&#39; strategies. Recent easing of these price advances may allow planners to be less defensive early in the New Year.
Note that the Chicago PMI data are contained in the USECON database. The other cities are included in Haver&#39;s SURVEYS database.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">Purchasing Manager Surveys</th>
<th scope="col">Dec 2006</th>
<th scope="col">Nov 2006</th>
<th scope="col">Oct 2006</th>
<th scope="col">Dec 2005</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">New York Index, SA, 1996=100</td>
<td>443.4</td>
<td>441.6</td>
<td>425.3</td>
<td>354.2</td>
<td>402.7</td>
<td>340.1</td>
<td>294.3</td>
</tr>
<tr>
<td class="firstcol">Current Conditions, 50%+=Growth</td>
<td>53.6</td>
<td>82.5</td>
<td>58.6</td>
<td>53.6</td>
<td>64.9</td>
<td>57.5</td>
<td>61.6</td>
</tr>
<tr class="odd">
<td class="firstcol">Chicago, SA, 50%+=Growth</td>
<td>52.4</td>
<td>49.9</td>
<td>53.5</td>
<td>60.8</td>
<td>56.8</td>
<td>60.4</td>
<td>62.8</td>
</tr>
<tr>
<td class="firstcol">Cincinnati, NSA, Net Balance</td>
<td>6</td>
<td>15</td>
<td>28</td>
<td>11</td>
<td>26</td>
<td>23</td>
<td>36</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; New Orders</td>
<td>-12</td>
<td>20</td>
<td>20</td>
<td>0</td>
<td>24</td>
<td>18</td>
<td>32</td>
</tr>
<tr>
<td class="firstcol">Milwaukee, SA, 50%+=Growth</td>
<td>58</td>
<td>56</td>
<td>64</td>
<td>66</td>
<td>58</td>
<td>58</td>
<td>60</td>
</tr>
</tbody>
</table>
</body>
</html>

Industrial activity generally improved in December, according to local Purchasing Managers' surveys released December 28 and 29. In New York, a broad index covering both manufacturing and services edged higher after a strong rise in [...]

Local NAPM Reports Show Gains in December, but Include Weak Components

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061228c.jpg" width="353">
Consumer confidence rose in December, according to the Conference Board&#39;s monthly survey. It went up 3.7 points to 109.0 (1985=100), the highest reading since April. November&#39;s figure was revised upward by 2.3% from 102.9 reported a month ago. Both major components, assessments of present conditions and expectations for the coming six months, contributed to December&#39;s rise, adding 4.5 points and 3.2 points, respectively. This outcome differs from the University of Michigan survey, which eroded a bit on diminished expectations. It also differs from consensus forecasts, which had looked for a decrease from the original 102.9 to 102.1.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061228d.jpg" width="353">
&quot;Present conditions&quot; are measured by responses about general business conditions and the status of labor markets. This month, ironically, fewer consumers said they see business conditions as &quot;good&quot;, but the number saying they are &quot;bad&quot; decreased more. There appears to be some improvement in the availability of jobs, as the number seeing jobs as &quot;plentiful&quot; increased 1.2 points, although at 26.9%, that remains below the first seven months of 2006. The proportion of consumers believing jobs are &quot;hard to get&quot; also rose a bit, but just 0.9 point; this too has a less favorable reading than what prevailed in the first half of 2006.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061228e.jpg" width="353">
Expectations are mixed. The share of consumers looking for &quot;more jobs&quot; increased 0.7 point to 14.0%, but paradoxically the share expecting their income to go up decreased by 2.4 points. Sources of the rise in expectations are actually more &quot;back-handed&quot;: fewer people expect business and employment conditions to worsen.
So, despite the favorable appearance of the overall consumer confidence indexes, the details suggest that people remain skittish. Results concerning interest rates and the stock market also indicate this ambivalence: while many fewer people are looking for higher interest rates, the number of people looking for higher stock prices is down and the number looking for lower stock prices is up. Stay tuned! 

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">Conference Board &nbsp;(SA, 1985=100)</th>
<th scope="col">Dec 2006</th>
<th scope="col">Nov 2006</th>
<th scope="col">Oct 2006</th>
<th scope="col">Dec 2005</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Consumer Confidence Index</td>
<td>109.0</td>
<td>105.3</td>
<td>105.1</td>
<td>103.8</td>
<td>105.8</td>
<td>100.3</td>
<td>96.1</td>
</tr>
<tr>
<td class="firstcol">Present Conditions</td>
<td>129.9</td>
<td>125.4</td>
<td>125.1</td>
<td>120.7</td>
<td>130.1</td>
<td>116.1</td>
<td>94.9</td>
</tr>
<tr class="odd">
<td class="firstcol">Expectations</td>
<td>95.1</td>
<td>91.9</td>
<td>91.9</td>
<td>92.6</td>
<td>89.6</td>
<td>89.7</td>
<td>96.9</td>
</tr>
</tbody>
</table>
</body>
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Consumer confidence rose in December, according to the Conference Board's monthly survey. It went up 3.7 points to 109.0 (1985=100), the highest reading since April. November's figure was revised upward by 2.3% from 102.9 reported a [...]

Consumer Confidence Increases Unexpectedly in December, but Net Gains Based in Fewer Negative Responses

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061228a.jpg" width="353">
After existing home sales had increased modestly in October, economists looked for them to retreat in November by about half of their October rise. Instead, the National Association of Realtors reported this morning, these home sales increased further. It&#39;s a mild gain of just 0.6%, following October&#39;s 0.5% and these sales are still more than 11% lower than year-ago volume. But as with the new home sales report yesterday, the unexpected move suggests that the housing market may well be stabilizing. Sales of single-family homes inched ahead 0.2%, and October volume was revised slightly higher to a 1.5% rise from 1.3% reported initially.
By region, sales rose 6.0% in the Northeast and 0.8% in the West. They were flat in the Midwest and continued to fall in the South, this time by 1.6%.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061228b.jpg" width="353">
Home prices fell by 0.5% for all existing home sales and by 1.1% for single-family houses alone. October&#39;s prices for total sales were revised down, so they now show a mild decline then and four monthly decreases running. Notably, though, prices in the Northeast and in the West both had good increases, 5.1% and 2.6%, respectively.
The inventory of &quot;homes on the market&quot; fell by 1.0%, renewing the slight downtrend that had begun in August, after a 2.0% rise in October. At current sales rates, it now amounts to 7.3 months&#39; of sales, just below October&#39;s 7.4 months.
The entire housing market, new and existing, experienced rising sales in November. These increases were small but unexpected. Inventories of unsold homes also fell in both market segments, improving the underlying condition of the markets. We don&#39;t want to make too much of these developments, but they are encouraging. Support from more moderate interest rates, flexible pricing and lower energy prices all surely helps.
The broad aggregate data on existing home sales are included in Haver&#39;s USECON database; details about prices by region and inventories are available in the REALTOR database. 

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">Existing Home Sales (SAAR, 000s)</th>
<th scope="col">Nov 2006</th>
<th scope="col">Oct 2006</th>
<th scope="col">Sept 2006</th>
<th scope="col">Year/ Year</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total Sales</td>
<td>6,280</td>
<td>6,240</td>
<td>6,210</td>
<td>-11.1%</td>
<td>7,074</td>
<td>6,782</td>
<td>6,176</td>
</tr>
<tr>
<td class="firstcol">Single-Family Sales</td>
<td>5,520</td>
<td>5,510</td>
<td>5,430</td>
<td>-11.5%</td>
<td>6,178</td>
<td>5,962</td>
<td>5,444</td>
</tr>
<tr class="odd">
<td class="firstcol">Median Single-Family Home Price (NSA,000s)</td>
<td>$217.2</td>
<td>$219.6</td>
<td>$221.1</td>
<td>-3.6%</td>
<td>$217.5</td>
<td>$192.8</td>
<td>$178.3</td>
</tr>
</tbody>
</table>
</body>
</html>

After existing home sales had increased modestly in October, economists looked for them to retreat in November by about half of their October rise. Instead, the National Association of Realtors reported this morning, these home sales [...]

Existing Home Sales Also Up in November; Prices Are Down Slightly, but Supply Overhang Shrinks a Bit as Market [...]

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061228a.jpg" width="353">
After existing home sales had increased modestly in October, economists looked for them to retreat in November by about half of their October rise. Instead, the National Association of Realtors reported this morning, these home sales increased further. It&#39;s a mild gain of just 0.6%, following October&#39;s 0.5% and these sales are still more than 11% lower than year-ago volume. But as with the new home sales report yesterday, the unexpected move suggests that the housing market may well be stabilizing. Sales of single-family homes inched ahead 0.2%, and October volume was revised slightly higher to a 1.5% rise from 1.3% reported initially.
By region, sales rose 6.0% in the Northeast and 0.8% in the West. They were flat in the Midwest and continued to fall in the South, this time by 1.6%.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061228b.jpg" width="353">
Home prices fell by 0.5% for all existing home sales and by 1.1% for single-family houses alone. October&#39;s prices for total sales were revised down, so they now show a mild decline then and four monthly decreases running. Notably, though, prices in the Northeast and in the West both had good increases, 5.1% and 2.6%, respectively.
The inventory of &quot;homes on the market&quot; fell by 1.0%, renewing the slight downtrend that had begun in August, after a 2.0% rise in October. At current sales rates, it now amounts to 7.3 months&#39; of sales, just below October&#39;s 7.4 months.
The entire housing market, new and existing, experienced rising sales in November. These increases were small but unexpected. Inventories of unsold homes also fell in both market segments, improving the underlying condition of the markets. We don&#39;t want to make too much of these developments, but they are encouraging. Support from more moderate interest rates, flexible pricing and lower energy prices all surely helps.
The broad aggregate data on existing home sales are included in Haver&#39;s USECON database; details about prices by region and inventories are available in the REALTOR database. 

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">Existing Home Sales (SAAR, 000s)</th>
<th scope="col">Nov 2006</th>
<th scope="col">Oct 2006</th>
<th scope="col">Sept 2006</th>
<th scope="col">Year/ Year</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total Sales</td>
<td>6,280</td>
<td>6,240</td>
<td>6,210</td>
<td>-11.1%</td>
<td>7,074</td>
<td>6,782</td>
<td>6,176</td>
</tr>
<tr>
<td class="firstcol">Single-Family Sales</td>
<td>5,520</td>
<td>5,510</td>
<td>5,430</td>
<td>-11.5%</td>
<td>6,178</td>
<td>5,962</td>
<td>5,444</td>
</tr>
<tr class="odd">
<td class="firstcol">Median Single-Family Home Price (NSA,000s)</td>
<td>$217.2</td>
<td>$219.6</td>
<td>$221.1</td>
<td>-3.6%</td>
<td>$217.5</td>
<td>$192.8</td>
<td>$178.3</td>
</tr>
</tbody>
</table>
Consumer Confidence Increases Unexpectedly in December, but Net Gains Based in Fewer Negative Responses 
by <a href="/comment/Stone.html">Carol Stone*</a> December 28, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061228c.jpg" width="353">
Consumer confidence rose in December, according to the Conference Board&#39;s monthly survey. It went up 3.7 points to 109.0 (1985=100), the highest reading since April. November&#39;s figure was revised upward by 2.3% from 102.9 reported a month ago. Both major components, assessments of present conditions and expectations for the coming six months, contributed to December&#39;s rise, adding 4.5 points and 3.2 points, respectively. This outcome differs from the University of Michigan survey, which eroded a bit on diminished expectations. It also differs from consensus forecasts, which had looked for a decrease from the original 102.9 to 102.1.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061228d.jpg" width="353">
&quot;Present conditions&quot; are measured by responses about general business conditions and the status of labor markets. This month, ironically, fewer consumers said they see business conditions as &quot;good&quot;, but the number saying they are &quot;bad&quot; decreased more. There appears to be some improvement in the availability of jobs, as the number seeing jobs as &quot;plentiful&quot; increased 1.2 points, although at 26.9%, that remains below the first seven months of 2006. The proportion of consumers believing jobs are &quot;hard to get&quot; also rose a bit, but just 0.9 point; this too has a less favorable reading than what prevailed in the first half of 2006.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061228e.jpg" width="353">
Expectations are mixed. The share of consumers looking for &quot;more jobs&quot; increased 0.7 point to 14.0%, but paradoxically the share expecting their income to go up decreased by 2.4 points. Sources of the rise in expectations are actually more &quot;back-handed&quot;: fewer people expect business and employment conditions to worsen.
So, despite the favorable appearance of the overall consumer confidence indexes, the details suggest that people remain skittish. Results concerning interest rates and the stock market also indicate this ambivalence: while many fewer people are looking for higher interest rates, the number of people looking for higher stock prices is down and the number looking for lower stock prices is up. Stay tuned! 

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">Conference Board &nbsp; (SA, 1985=100)</th>
<th scope="col">Dec 2006</th>
<th scope="col">Nov 2006</th>
<th scope="col">Oct 2006</th>
<th scope="col">Dec 2005</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Consumer Confidence Index</td>
<td>109.0</td>
<td>105.3</td>
<td>105.1</td>
<td>103.8</td>
<td>105.8</td>
<td>100.3</td>
<td>96.1</td>
</tr>
<tr>
<td class="firstcol">Present Conditions</td>
<td>129.9</td>
<td>125.4</td>
<td>125.1</td>
<td>120.7</td>
<td>130.1</td>
<td>116.1</td>
<td>94.9</td>
</tr>
<tr class="odd">
<td class="firstcol">Expectations</td>
<td>95.1</td>
<td>91.9</td>
<td>91.9</td>
<td>92.6</td>
<td>89.6</td>
<td>89.7</td>
<td>96.9</td>
</tr>
</tbody>
</table>
</body>
</html>

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061227a.jpg" width="353">
New home sales rebounded 3.4% in November to 1.047 million, almost reversing October&#39;s decline. October sales were revised higher by 9,000. The Action Economics consensus forecast called for a more modest increase to 1.020 million (see Haver&#39;s AS1REPNA database). November sales were up in the Northeast, the Midwest and the West, but still down in the South.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061227b.jpg" width="353">
Home prices also rose, with the median gaining 3.2% to $251,700, the highest level since April&#39;s $257,000, which is the record high. October prices were revised lower, but those in September were increased.
The November sales pushed down builders&#39; inventories from 553,000 at the end of October to 545,000, making a fourth consecutive monthly decline. At the current sales pace, this level represents 6.3 months&#39; sales. While this is well above the year-ago amount of 4.9 months, it is also well down from July&#39;s peak of 7.2 months.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061227b.jpg" width="353">
Thus, the housing sector seems to be holding in pretty well. After the substantial &quot;bubble&quot; that began in the middle of 2003, a consolidation was to be expected. But current conditions indicate some stabilization, suggesting that &quot;consolidation&quot; may be an appropriate description, not &quot;implosion&quot;. Flexible pricing and sensitive interest rates have helped. In fact, last week&#39;s cost for 30-year fixed-rate mortgage commitments is down more than 10 basis points from November&#39;s 6.27% shown in the table, giving a total reduction of about 60 basis points from July&#39;s high. Here&#39;s hoping the New Year extends this performance. 

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">US New Homes, Seas Adj</th>
<th scope="col">Nov 2006</th>
<th scope="col">Oct 2006</th>
<th scope="col">Sept 2006</th>
<th scope="col">Nov 2005</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total Sales (SAAR, 000s)</td>
<td>1,047</td>
<td>1,013</td>
<td>1,053</td>
<td>1,236</td>
<td>1,280</td>
<td>1,201</td>
<td>1,091</td>
</tr>
<tr>
<td class="firstcol">Median Price (NSA, $)</td>
<td>251,700</td>
<td>243,800</td>
<td>225,500</td>
<td>237,900</td>
<td>234,208</td>
<td>217,817</td>
<td>191,383</td>
</tr>
<tr class="odd">
<td class="firstcol">Inventory: Months&#39; Supply</td>
<td>6.3</td>
<td>6.7</td>
<td>6.6</td>
<td>4.9</td>
<td>4.4</td>
<td>4.0</td>
<td>3.8</td>
</tr>
<tr>
<td class="firstcol">FHLMC Mortgage Rate (%)</td>
<td>6.27</td>
<td>6.36</td>
<td>6.41</td>
<td>6.33</td>
<td>5.86</td>
<td>5.84</td>
<td>5.82</td>
</tr>
</tbody>
</table>
</body>
</html>

New home sales rebounded 3.4% in November to 1.047 million, almost reversing October's decline. October sales were revised higher by 9,000. The Action Economics consensus forecast called for a more modest increase to 1.020 million [...]

New Home Sales Gain 3.4% in November; Prices Also Up, Inventories Down

Recent aggressive policy easing in China has given a massive boost to equity prices

FOMC expects much more easing now than in June

US is clear world leader in business capital spending on artificial intelligence

Blue Chip forecasters expect US to lead aggressive policy rate cuts over coming year—apart from Japan

Ratio of job openings to the number unemployed in the US now below pre-pandemic level

U.S. layoffs not showing as much cooling in labor markets as unemployment rate

While goods prices have moderated, service price inflation remains elevated and sticky

Since Jan 2023, BCEI US outlook has improved, worsened for Japan and the euro area

Persistent negative US economic surprises leading to big rate-cut expectations

Germany is Euro area weakling

Flash PMIs show good start to Q3 in US; loss of momentum in the euro area

Chinese economy on downtrend could threaten global economy

Working age population labor force participation near all-time high as retirements increase

Blue Chip forecasters look for widespread policy rate cuts just ahead

Flash June PMIs point to a widespread slowdown apart from the US

Announcement of snap French election is causing concern across Europe

The UK economy’s post-pandemic under-performance relative to its pre-pandemic trend

US Beveridge Curve back to near pre-pandemic levels

Negative economic surprises in the US but positive in Europe, especially the UK

Latest PMIs show US losing momentum while RoW is gaining momentum

Sticky services prices behind sticky overall PCE inflation

Flash April PMIs point to slower growth in the US but a pickup in Europe and Japan

Outlook strengthens for US while it weakens for other major economies

Crude petroleum prices are having a big impact on inflation expectations

Inflation surprising to upside in the US; by contrast to the downside in the euro area

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Tom Moeller

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Nonfarm payrolls increased 254,000 (1.5% y/y) in September after rising 159,000 in August, revised from 142,000, and 144,000 in July, revised from 89,000. Expectations had been for a 150,000 rise in the Action Economics Forecast Survey. The three-month average change of 186,000 is the strongest since May.

Average hourly earnings increased 0.4% last month following a gain of 0.5% in August, revised from 0.4%. The y/y earnings gain edged up to 4.0% from 3.9% in August and 3.6% in July, but remained below the 5.9% high in March 2022. A 0.3% September increase had been expected.

The unemployment rate, measured in the household survey, edged down to 4.1% in September from 4.2% in August. It reached a low of 3.4% in April of last year. An unchanged 4.2% had been expected. Household employment rose 430,000 after increasing 168,000 in July. The labor force increased 150,000 after a 120,000 July gain. The overall unemployment rate, including workers who were marginally attached & working part-time for economic reasons declined to 7.7% from 7.9%.

In the **payroll survey**, private-sector employment increased 223,000 (1.4% y/y) in September after rising 114,000 in August. Construction sector employment increased 25,000 (2.8% y/y) last month after rising 31,000 in August. Factory sector payrolls eased 7,000 (-0.2% y/y) after falling 27,000. Mining & logging sector jobs rose 3,000 (-0.6% y/y) during September after rising 1,000 in each of the prior two months.

Private service-producing employment strengthened 202,000 in September (1.5% y/y) after a 109,000 August rise. Increases varied greatly amongst service sector categories. Private education & health service jobs rose 81,000 (3.8% y/y) after rising 60,000 in August while leisure & hospitality employment rose 78,000 (2.0% y/y) after a 53,000 gain. Professional & business service jobs rose 17,000 (0.4% y/y) after easing 4,000 in both August and July. Within that category, the number of temporary jobs fell 13,800 (-6.0% y/y) and have fallen consistently since a March 2022 high. Trade, transportation & utilities employment gained 13,000 (0.6% y/y) after falling 5,000 while financial activities jobs rose 5,000 in September (0.4% y/y) after improving 10,000 in August. Information sector employment increased 4,000 in last month (-0.2% y/y) after falling 7,000 in August.

Government sector payrolls improved 31,000 in September (2.1% y/y) after increasing 45,000 in August. Local government jobs improved 16,000 (2.0% y/y) after rising 33,000 in August while state government employment rose 13,000 (2.5% y/y) after an 11,000 gain. The number of federal government jobs increased 2,000 (1.7% y/y) following a 1,000 rise.

The 0.4% September rise in private-sector average hourly earnings reflected a 0.5% gain (4.9% y/y) in the goods-producing sector which followed a 0.4% improvement in August. Earnings in construction improved 0.4% (4.6% y/y) while factory sector earnings rose 0.5% (5.1% y/y), following a 0.4% gain. In the private services-sector, earnings rose 0.3% last month (3.7% y/y) after a 0.5% gain. Professional & business service sector earnings strengthened 0.8% (5.0% y/y) after a 0.6% rise. Leisure & hospitality earnings improved 0.2% (4.3% y/y) after rising 0.3%. Financial sector earnings increased 0.2% (4.2% y/y) after a 0.5% gain. Private education & health services earnings improved 0.3% (3.1% y/y) for the fourth straight month. Trade, transportation and utilities pay edged 0.1% higher (2.8% y/y) in September after a 0.4% rise. Information sector earnings declined 0.4% (+3.6% y/y) after strengthening 1.1% in July.

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The length of the average workweek in the private sector eased to 34.2 hours in September after rising in August to 34.3 hours. The workweek in the goods-producing sector of 39.9 hours compared to 39.8 hours in August. The construction sector average workweek lengthened to 39.2 hours from 39.0. The factory sector workweek held steady at 40.0 hours while the average workweek in the private service sector slipped to 33.1 hours. The aggregate weekly hours index in the private sector, a key indicator of production and income, slipped 0.1% in September (+0.9% y/y) after rising 0.3%. The Q3 average increased 0.2% (AR) from Q2’24.

In the **household survey**, the jobless rate fell to 4.1% as employment rose 0.3% and the size of the labor force edged 0.1% higher. The labor force participation rate was 62.7% for the third straight month. The rate for teenagers rebounded to 37.2%, while for individuals aged 20-24, it was little-change at 70.6%. For rate for workers aged 25-54, the rate fell to 83.8% but for workers 55 and over, it held steady at 38.6 hours.

The employment/population ratio for all workers rose to 60.2% in September and has been moving sideways since early last year. It remained below its high of 61.1% in February 2020, just prior to the pandemic.

The employment and earnings data are collected from surveys taken each month during the week containing the 12th day of the month. The labor market data are contained in Haver's **USECON** database. Detailed figures are in the **EMPL** and **LABOR** databases. The expectations figures are in the **AS1REPNA** database.

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- Surprising job strength is narrowly based.
- Earnings increase is better-than-expected; August pay growth lifted.
- Jobless rate slips to three-month low.

U.S. Payroll Employment Accelerates in September and Wage Growth Firms; Jobless Rate Edges Lower

Robert Brusca

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French industrial output rose sharply in August, a gain of 1.6% after declining by 0.2% in July. Output in August was led by consumer goods; nondurable goods output increased 4.2% month-to-month in August while consumer durable goods output increased by 3% month-to-month. Output of capital goods was also strong during the month, with a 1.6% gain, although intermediate goods output continued to be weak, falling by 0.4% in August and dropping for the second month in a row.

Sequentially French output explodes over three months although it's relatively mild mannered over 12 months and over six months. The strength in French output is relatively recent. Manufacturing output gains 0.3% over 12 months; over six months it is falling at a 0.5% annual rate but that transforms into a 31.1% annual rate over three months as output sharply recovered in June and in August.

**Sequential growth for MFG components**
Components find consumer durable goods output falling by 6.3% over 12 months, gaining at a 4% annual rate over six months then rising at a strong 14.9% annual rate over three months showing steady acceleration. Consumer nondurable goods output rises by 5.9% over 12 months; output slows to gain at a 4.3% annual rate over six months then it expands sharply to grow at a 19% annual rate over three months. French capital goods output is up only 0.3% over 12 months, but it then expands at a 1.5% annual rate over six months and gains at a 14.2% annual rate over three months showing steadily accelerating growth on this time sequence. Intermediate goods output falls by 3.4% over 12 months, falls more sharply, at a 6.6% annual rate over six months, then cuts that weakness to only a 0.2% annual rate drop over three months.

**Quarter-to-date**
With two months into the third quarter, manufacturing output is rising at 1.6% annual rate, with consumer nondurable output up at a 7% annual rate and consumer durable goods output up at a 3.8% annual rate. Capital goods output is up at a 4.3% annual rate; intermediate goods output is falling at a 5% annual rate in the quarter-to-date.

During this period when output has been experiencing some mild increases, they have transformed into strong increases over three months. Yet, motor vehicle registrations have been consistently weak. That important big ticket consumer item has not taken off.

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**Manufacturing: IP vs. PMI**
The chart shows that manufacturing output as measured by the IP index has been relatively flat. But output as signaled by the S&P PMI survey has showed building weakness in French manufacturing. The PMI trend to weakness was being arrested early in 2024 but then the incipient rebound turned into more weakness. Just this month there has been some small rebound and stabilization in the MFG PMI.

It's here from the PMI, that data give much more of a sense of French output being weak than we get from looking at the industrial output report itself. French industrial output has been fairly flat, but with a small uptrend in place.

Smoothed year-on-year gains show that French output generally saw year-on-year expansion from early-2022 to May 2024. Since then, output has been more erratic with a deep decline logged in May IP. The sector has subsequently been digging itself back out. This month’s surge in output is continuing evidence of that recovery in progress. We do not get the same sense of weakness from looking at French IP data that we form looking at French PMI data.

France

French IP Ignites for a Month

Andrew Cates

**Policy rate expectations**
Blue Chip panellists continue to forecast that policy rates in most major economies will decline sharply in coming months. The ECB, for example, is expected to lower its key policy rates by around 105 basis points over the next 12 months while the BoE is expected to lower its Bank rate by 125 bps over the same time frame. These forecasts contrast with the US where policy rates are expected to be lowered by 125 basis point between now and this time next year. The BoJ in the meantime continues to remain an outlier in this generic global trend with Japan’s policy rate specifically expected to climb by 45bps over the next 12 months.

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**The US labour market**
Ahead of the payrolls data for September that are due later this week there have been some mixed messages on the state of the US labour market in recent days. September’s ADP report concerning private sector employment, for example, was a little stronger than expected. On the weaker side, the latest Job Openings and Labour Turnover (JOLTS) survey revealed a steep decline in the number of people in the US workforce that have been quitting their jobs, a strong signal that the labour market is loosening. As chart 2 below suggests, that ought to additionally imply weaker wages pressures in the period ahead as well.

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**Geopolitical risks and oil prices**
Soft landing narratives have been aided by evidence suggesting that labour markets are cooling, that wage pressures are ebbing and that broader inflationary pressures are fading. But, as noted above, the escalation of geopolitical turbulence in the Middle East is now challenging these views. A widely watched gauge of geopolitical risks has bolted sharply higher in recent days off the heels of this turbulence, as evidenced in chart 3 below. And energy markets – oil prices in particular – appear to now be responding to this instability as well.

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**The real consumer price of energy versus US productivity growth**
It goes without saying that energy prices exert a powerful influence over the world economy. Aside from headline inflation linkages, high real energy prices have arguably been a key factor that’s kept productivity growth in many major economies muted over the past few years. As chart 4 below indicates, longer-term upswings in US productivity growth have tended to be preceded by weaker real energy prices. Equally, longer-term downswings in productivity have typically followed periods when real energy prices have been rising.

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**Globalisation versus de-globalisation** 
A further disruption of supply chains is also a looming threat to the world economy if the instability in the Middle East were to intensify. In the background to this, and thanks to several additional factors that have undermined world trade in recent years, a de-globalisation of the world economy has been unfolding. That said, latest data from the World Bank suggest we should not get too carried with that de-globalisation narrative. The level of world trade in services, for example, reached a record high in 2023.

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**Indebtedness and interest rates**
There is no doubt that ongoing geopolitical instability, combined with other factors such as heightened protectionism, could accelerate a broader trend toward de-globalization in the coming period. This, along with other structural challenges such as high energy prices and ageing demographics, may be hindering long-term productivity growth. Offsetting factors do exist, most notably the productivity potential of Artificial Intelligence. However, until those offsets fully materialize, many policymakers are likely to again rely on monetary policy tools and other re-leveraging initiatives to boost economic growth to politically acceptable levels. The strong negative correlation between long-term US real interest rates and global indebtedness in chart 6 below highlights how these policy efforts have become central to maintaining economic stability, often at the expense of increasing financial vulnerabilities.

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In recent weeks, financial markets have generally aligned with expectations of a soft landing for the global economy, facilitated by more accommodative policies from central banks (see chart 1). This week’s dataflow have largely reinforced these views (see chart 2) as have the communications from many policymakers. However, the escalation of geopolitical turbulence in the Middle East in recent days is now challenging this narrative. By potentially choking supply chains and raising risk premiums in energy markets, there could be growth and inflation-related consequences for the world economy in the coming weeks (see charts 3). This also serves as a reminder that there are longer-term headwinds that are placing a brake on global growth at present, including high real energy prices (chart 4), de-globalization pressures (chart 5) and lingering debt-related imbalances (see chart 6). And many of these issues could be exacerbated if the turmoil in the Middle East were to intensify.

<iframe style="border-radius:12px" src="https://open.spotify.com/embed/episode/7KICKDIZCtV4hBZetWzQxd?utm_source=generator" width="100%" height="152" frameBorder="0" allowfullscreen="" allow="autoplay; clipboard-write; encrypted-media; fullscreen; picture-in-picture" loading="lazy"></iframe>

Charts of the Week: Geopolitical Scarring

Winnie Tapasanun

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The U.S. ISM Services PMI rose to 54.9 in September, the highest level since February 2023, after a 0.1-point uptick to 51.5 in August, according to today’s report by the Institute for Supply Management, indicating expansion in the services sector for the third straight month, in seven of nine months in 2024, and for the 49th time in 52 months. The September index was up from a four-year-low 48.8 in June, 53.4 in September 2023, and a low of 49.0 in December 2022; however, having remained down from a record-high 67.1 in November 2021. The 12-month average was 51.8, reflecting strong growth in the U.S. services sector. The Action Economics Forecast Survey had expected 51.7 for September.

Haver Analytics constructs a composite index combining the services index and the manufacturing reading. This index rose to 53.9 in September after a 0.2-point increase to 51.0 in August, showing expansion for fourth time in five months. The latest figure was higher than a four-year-low 48.8 in June, 52.8 in September 2023, and a low of 48.9 in December 2022; nevertheless, having remained well below a record-high 66.3 in November 2021. These series date back to July 1997.

In the latest services survey, the business activity index rebounded to 59.9 in September from 53.3 in August, indicating business activity expanded for the 51st time in 52 months and at the highest level since May. The index was up from its recent low of 49.6 in June and a low of 52.7 in December 2022 but below a record-high 69.5 in November 2021. An increased 30.1% of respondents (NSA) reported higher activity in September while a lessened 8.2% reported an activity decline. The new orders index advanced to 59.4 in September from 53.0 in August, indicating expansion in new orders for the 50th time in 52 months and at the fastest pace since February 2023. The index was up from its recent low of 47.3 in June and a low of 45.0 in December 2022 but down from a record-high 69.5 in October 2021. An increased 30.9% of respondents (NSA) reported higher orders in September while a lessened 10.4% reported a decline. Meanwhile, the supplier deliveries index (NSA) rose to 52.1 in September from 49.6 in August, indicating slower supplier delivery performance after two months in faster territory.

On the labor front, the employment index decreased to 48.1 in September on top of a 0.9-point decline to 50.2 in August, showing employment activity in the services sector contracted after two months of expansion. The latest reading, while above a low of 43.8 in December 2023, was below a high of 54.1 in August 2023 and a high of 58.3 in April 2021. A lessened 13.0% of respondents (NSA) indicated higher employment in September while 14.4% reported a decline.

On the inflation front, the prices index rose to 59.4 in September after a 0.3-point increase to 57.3 in August, indicating prices paid by services organizations for materials and services had risen (i.e., above 50) since June 2017 and at the fastest rate since January’s high of 64.0. The index was up versus its recent low of 53.4 in March and a low of 54.8 in June 2023; however, having remained significantly below a record-high 83.8 in March 2022. An increased 22.7% of respondents (NSA) reported price rises in September while a lessened 6.0% reported price declines.

Additionally, the new export orders index increased to 56.7 in September following a 7.6-point drop to 50.9 in August, indicating new export orders expanded for the 10th time in 11 months at a faster rate. The imports index rebounded to 52.7 in September from 50.3 in August, registering the third consecutive month of expansion after contracting in June and May. The inventories index advanced to 58.1 in September from 52.9 in August, indicating inventories expanded for the second successive month and at the fastest pace since May 2023. The inventory sentiment index fell to 54.0 in September after declining to 54.9 in August, showing continued expansion since May 2023 but at the slowest rising rate since June 2023. The backlog of orders index increased to 48.3 in September after dropping to 43.7 in August, posting the third contraction in four months. These series are not seasonally adjusted and not included in the ISM Services PMI total.

The ISM Services PMI is a composite index consisting of four equally weighted diffusion indexes (25% each): Business Activity, New Orders, Employment, and Supplier Deliveries. A reading above 50 indicates expansion in the services sector; below 50 suggests contraction. Supplier Deliveries is the only ISM index that is inversed; a reading above 50 indicates slower deliveries. The ISM figures are available in Haver's **USECON** database, with additional detail in the **SURVEYS** database. The expectations figure from Action Economics is in the **AS1REPNA** database.

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- 54.9 in September vs. 51.5 in August, higher than expected; 3.1 pts. above the 12-month avg. of 51.8.
- Business Activity (59.9, a four-month high), New Orders (59.4, the highest since Feb. ’23), Employment (48.1, the first contraction since June), and Supplier Deliveries (52.1 vs. 49.6).
- Prices Index rises 2.1 pts. to 59.4, the highest since January.

U.S. ISM Services PMI Jumps in September; Highest Level Since February ’23

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New orders for manufactured goods eased 0.2% (+0.9% y/y) during August, after strengthening 4.9% in July, revised from 5.0%, according to the Census Bureau. Orders declined 3.3% in June. The Action Economics Forecast Survey expected a 0.2% increase in total factory orders. Excluding the transportation sector, orders eased 0.1% (+0.5% y/y) after rising 0.3% in July.

New orders for durable goods were unchanged during August (+1.5% y/y), unrevised from the advance release, and followed a 9.8% July gain. The weakness in durable goods orders reflected a 0.8% easing (+2.5% y/y) in transportation sector orders. This followed a 34.6% jump in July, which was buoyed by higher civilian aircraft orders. Motor vehicle & parts orders eased 0.7% (-1.8% y/y) after a 1.0% decline. Orders for all factory products outside the transportation sector slipped 0.1% (+0.5% y/y) in August following a 0.3% July increase. Elsewhere, primary metals orders rose 0.2%, up 0.1% y/y. Machinery orders gained 0.4% (0.1% y/y), while computer & electronics rose 0.4% (2.8% y/y). Electrical equipment orders rose 2.4% (2.8% y/y), following a 0.8% decline.

Shipments by all manufacturing industries eased 0.5% in August (+1.0% y/y) after rising 0.8% in July. Durable goods shipments fell 0.6% (+1.7% y/y) after two months of roughly 1.1% gain. Transportation product shipments fell 2.0% (+5.0% y/y) after a 3.4% rise. Shipments excluding the transportation sector eased 0.2% (+0.2% y/y) after rising 0.3% in July. Machinery shipments rose 0.3% in August (-0.9% y/y) while computer & equipment shipments eased 0.2% (-0.1% y/y). Electrical equipment & appliance shipments rose 0.4% (+0.7% y/y). Nondurable goods shipments, which equal orders, fell 0.5% (+0.3% y/y) after increasing 0.6% in July. Food product shipments eased 0.1% (+1.3% y/y) while apparel shipments rose 0.4% (-2.4% y/y) after two months of decline. Textile product shipments weakened 1.7% both m/m and y/y after falling 0.3% in July. Paper product shipments rose 0.3% (2.1% y/y), following a 0.8% increase. Petroleum & coal product shipments declined 2.3% (-10.9% y/y) in August, after rising 0.5%. Basic chemical shipments rose 0.3% (5.8% y/y) after a 0.8% July increase.

There are no unfilled orders figures for nondurable goods industries. Unfilled orders for durable goods rose 0.4% (4.1% y/y) in August after a 0.2% rise. Transportation unfilled orders rose 0.5% (6.8% y/y) after increasing 0.3% in July. Excluding transportation, unfilled orders rose 0.2% (-0.4% y/y) after holding steady in July. Unfilled orders for durable goods less transportation have been trending sideways since 2022. Unfilled orders for machinery eased 0.1% (-3.7% y/y) while electrical equipment & appliance backlogs rose 0.4% (-0.0%) after a 0.2% decline.

Inventories of all manufactured products rose 0.1% in August (0.6% y/y) after holding steady in July. Durable goods inventories edged 0.1% higher (1.3% y/y) after holding steady in July. Transportation equipment inventories edged 0.1% higher (4.7% y/y) and inventories less transportation rose 0.2% (-0.4% y/y) after holding steady for five straight months. Nondurable goods inventories rose 0.2% (-0.5% y/y) after remaining unchanged for two months, though petroleum inventories rose 0.8% (-1.9% y/y) in August after easing 0.1% in July.

Manufacturers’ orders and shipments of durable and nondurable goods, along with unfilled orders and inventories, are compiled by the U.S. Census Bureau. They are available in Haver’s **USECON** database. The Action Economics forecast data are in the **AS1REPNA** database.

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- Improved y/y in orders momentum remains in place.
- Shipments weighed down by a decline in nondefense aircraft sales.
- Unfilled orders and inventories rise modestly.

Economy in Brief: 2006

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Local NAPM Reports Show Gains in December, but Include Weak Components

Local NAPM Reports Show Gains in December, but Include Weak Components

Consumer Confidence Increases Unexpectedly in December, but Net Gains Based in Fewer Negative Responses

Existing Home Sales Also Up in November; Prices Are Down Slightly, but Supply Overhang Shrinks a Bit as Market [...]

Existing Home Sales Also Up in November; Prices Are Down Slightly, but Supply Overhang Shrinks a Bit as Market [...]

New Home Sales Gain 3.4% in November; Prices Also Up, Inventories Down

New Home Sales Gain 3.4% in November; Prices Also Up, Inventories Down

New Home Sales Gain 3.4% in November; Prices Also Up, Inventories Down